REUTERS SUMMIT-Nvidia to license graphics technology -CEO

Reuters Staff

6 Min Read

(Adds CEO quote, background in paragrpahs 20-23)

By Noel Randewich

SAN FRANCISCO, June 18 (Reuters) - Nvidia Chief Executive Jen-Hsun Huang said he will license graphics technology to other companies, a new model for the chipmaker that could lead to new business with Apple, Samsung and other mobile device makers.

Huang told the Reuters Global Technology Summit in San Francisco on Tuesday that licensing graphics cores and visual patents would help Nvidia take greater advantage of the booming market for smartphones and tablets and tap markets it could not reach through selling its own chips.

“The bottom line is the world has changed and we’re expanding our business model to serve markets that we historically could not serve by selling chips alone,” Huang said.

With its core PC market struggling, Nvidia in recent years has established itself in the fast-growing mobile market, creating processors for tablets that take advantage of its graphics expertise.

But Nvidia has faced tough competition from the much larger Qualcomm, limiting its success. Apple designs its own processors for the iPhone and iPad, and top Android smartphone maker Samsung Electronics increasingly uses its own processors in its devices.

Licensing its graphics technology to those or other companies could help Nvidia, with a market capitalization of about $8 billion, reach further into the mobile industry than it has done on its own.

The move will put Nvidia into direct competition with UK-based Imagination Technologies, whose graphics technology is used in Apple’s iPhone, Samsung’s Galaxy S4 smartphone and other devices. Apple and top chipmaker Intel own stakes in Imagination.

Asked whether Nvidia hopes to license graphics technology to Apple and Samsung, Huang said he is beginning to engage with the marketplace.

“We will target customers where their capacity and desire to build their own application processors is great,” said Huang, who co-founded Nvidia two decades ago.

“This is a way for us to engage customers who don’t like to buy chips because they like to create their own, because they have the capacity, creativity and now the scale to build their own,” he said.

Nvidia will also be competing against UK-based ARM Holdings , which licenses processor technology to chipmakers including Nvidia and is increasingly targeting graphics as well.

Qualcomm uses its own graphics technology on its mobile processors.

Nvidia is also open to licensing its soon-to-launch Long Term Evolution (LTE) modem technology, Huang said.

Nvidia is integrating LTE features on upcoming versions of its Tegra chips, making them compatible with high-end carrier networks. Lack of LTE technology has kept Nvidia, Intel and other chipmakers out of the top-tier smartphone market, dominated by Qualcomm.

WIDE APERTURE

“This is a maturation in their mobility play,” Pat Moorhead, an analyst at Moor Insights and Strategy, said of Nvidia’s licensing plans.

“It widens the aperture for them because now they can look at Samsung and Apple, and HTC, and basically everyone who doesn’t use Qualcomm.”

Top chipmaker Intel has been slow to modify its powerful PC chips for low-power smartphones and tablets, but its newest crop of mobile chips is expected by many analysts to show major improvements and lead to even more competition in the already crowded mobile chip market.

Nvidia plans to start by licensing its Kepler architecture that it uses to make high-end graphics chips for PCs.

Global PC sales plunged 14 percent in the first three months of the year, the biggest decline in two decades of record-keeping, as tablets continue to gain in popularity and buyers appear to be avoiding Microsoft Corp’s new Windows 8 operating system, according to IDC.

Asked whether Nvidia could eventually depend on royalties for most of its business, Huang said, “I think the shape of companies in the future will look increasingly hybrid. Microsoft licenses software, they sell devices, they have services. All of the above. I think you’ll see more and more companies that are like that.”

He said Nvidia’s revenue from licensing would trail revenue from chip sales for a long time, and that gross margins would improve as the company wins more royalties.

Nvidia previously licensed graphics technology to Sony for the Playstation 3. In 2011, Intel agreed to pay Nvidia $1.5 billion over six years as part of a cross-licensing agreement.

“The opportunity went from a few million game consoles a year to now, billions of devices per year. The opportunity is now much bigger,” Huang said.

In a major break from its traditional business of designing chips, Nvidia later this month plans to begin shipping a hand-held game device using its Tegra 4 processors, a bid to use its appeal with PC game enthusiasts to challenge console makers like Sony Corp and Microsoft.

Also underscoring its pursuit of new markets, Nvidia this year has shown off new graphics-intense server products for games and offices, also made with its processors.